What are the tax implications when investing in US stocks?

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Below are the tax implications when investing in US stocks:

Capital Gains

  • NOT taxed in the U.S.
  • Considered as “Investment in Unlisted Securities”
    • Short-term is < 24 months (lower than 36 months in debt funds and US oriented funds)
    • STCG – Slab Rates (same as Debt/US oriented funds)
    • LTCG = 20% with Indexation benefit (same as Debt/US-oriented funds)

Dividends

  • 25% TDS will be deducted in the U.S.; Actual tax liability in India is because of DTAA
  • You will receive W8BEN Form from DriveWealth capturing the TDS deducted
  • In India, Dividends are now taxed at one’s marginal tax rates
  • Taxes paid in US can be offset against Indian tax liability

Example – Sagar is in the 30% tax slab in India. He holds Microsoft shares worth $10,000 and gets a dividend of $100 in FY20-21. He will get only $75 credit in his trading account. $25 are deducted as TDS and submitted with US revenue dept. If we assume USD INR as 75, he earns a Total dividend income of ~7500. His tax liability in India would be 30% of this – ₹2,250. Since $25 (₹1,875 has already been deducted by US, he could claim that as credit and his net extra liability to Indian tax dept would be ₹375).

As a note, NRIs using their foreign bank accounts for investing through Stockal would be taxed as per their country of tax residence. US taxation rules would remain the same for them.

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